If an air carrier has to cancel a flight, it is common practice for it to transfer the passengers to another flight operated by a third party. In such circumstances, if the substitute flight operated by the third party encounters problems (eg, overbooking) which mean that the service provided to the passenger cannot be achieved or is degraded, is the original air carrier still liable to the passenger? A case adjudicated by the People's Court of Pu Dong New District, Shanghai, answers this question.
The plaintiff purchased a round-trip business class ticket from Shanghai to New Zealand, stopping at Shenzhen and ending at Shanghai, for 11,614 yuan through the defendant's (ie, the air carrier's) official website.
Due to a change in the defendant's original domestic flight, the defendant arranged for the plaintiff to take an alternative flight operated by a third party. However, when checking in, the plaintiff was informed by the third party that the business class was overbooked, and if the plaintiff still wanted to take the flight, he would have to fly in the economy class.
For the sake of following the schedule, the plaintiff took the economy class seat, and the third party issued a certificate of involuntary downgrading to confirm that the passenger had involuntarily taken an economy class seat due to his ticket being transferred and the flight being overbooked. To indemnify the passenger for the downgrade, the third party gave the plaintiff 400 yuan in cash and required the plaintiff to sign a receipt which confirmed that such compensation constituted a final and full settlement of the issue.
The defendant had signed an agreement on ticket transfers and settlement with regard to irregular domestic flights with the third party and other airlines, which applied to situations in which an irregular flight operated by one party resulted in the passenger's failure to travel on schedule. To protect the passenger's interests, the agreement provided that passengers in such circumstances would be transferred to a flight operated by the other party. In this case, the defendant had paid the third party a transfer fee of $147.60.
Later, the plaintiff filed a claim against the defendant for breach of contract, based on the transfer of his ticket and the fact that he had been downgraded.
The Court held that although the defendant had transferred the plaintiff to the third party's flight and paid the third party a transfer fee of $147.60 based on the agreement, the defendant was still liable to the plaintiff for breach of contract.
When the plaintiff purchased a ticket from the defendant and the defendant delivered the ticket to the plaintiff, the two parties entered into an air passenger transport contract. Later, although the defendant had transferred the plaintiff to the flight operated by the third party, the contract between them was not terminated. Considering that the defendant did not clearly inform the plaintiff that its rights and obligations under the whole contract had been completely transferred to the third party, the defendant and the plaintiff were still in privity of contract, only with the third party performing certain contractual obligations on behalf of the defendant.
According to Civil Aviation Law, the defendant, as the contracting carrier, was responsible for the whole transport under the contract, while the third party, as the actual carrier, was responsible only for the transport it performed. If the acts and omissions of the actual carrier were related to the transport performed by it, they had to be regarded as acts and omissions of the contracting carrier.
Therefore, the transfer of the ticket did not lead to the transfer of rights and obligations under the air passenger transport contract; instead, the transfer led to the third party performing the contract on behalf of the defendant by providing an air transport service to the plaintiff. Even if the defendant and the third party had settled the transfer, the defendant, as the contracting carrier, was still liable to perform the contractual obligations to the plaintiff, and thus the plaintiff still was entitled to claim against the defendant.
In spite of the fact that the plaintiff had accepted the compensation of 400 yuan paid by the third party and signed the confirmation, which stated that the compensation was a final settlement of all related disputes, the plaintiff alleged that he had been forced to accept the third party's proposal to downgrade his ticket so that he could retain the original flight schedule. The plaintiff also claimed that he had signed the confirmation letter only after the third party had confirmed to him that he could raise a separate claim against the defendant.
Considering these circumstances, the Court accepted the plaintiff's allegation and found that the third party had not sufficiently informed the plaintiff that he could not claim against the defendant after signing the confirmation letter. Therefore, the plaintiff's acceptance of the compensation paid by the third party should not be deemed as the plaintiff having released the defendant of any liabilities. In fact, the plaintiff had claimed against the defendant after the completion of the trip, which reflected that the plaintiff had not exempted the defendant from liability. Therefore, the plaintiff was entitled to claim against the defendant, even after accepting the compensation paid by the third party.
As to the amount of compensation, the Court did not support the defendant's argument that the value of the domestic itinerary involved was 0 yuan, even though the plaintiff had not proved the price difference between the economy and business classes or his actual losses. Considering there was a certain price difference between the business and economy class tickets, and considering that the third party had compensated the plaintiff 400 yuan, the Court exercised its discretion and determined that the defendant should compensate the plaintiff 500 yuan for the losses caused by overbooking and the involuntary downgrading of his ticket.
Although the Contract Law expired after the Civil Code came into force on 1 January 2021, the provisions relevant to this case have been combined into the Civil Code. Therefore, this case still has its referential meaning to air carriers.
Contracting carriers should understand that, under Chinese law, their liability under an air transport contract will not be exempted even if part of the air carriage is actually performed by a third party. This means that an air carrier could be sued by a passenger directly, or even take liability, if a third party fails to perform a service agreed between the passenger and the original air carrier. Therefore, contracting carriers should be careful as to the clauses agreed with an actual carrier or third party in case the service provided by the latter results in losses or claims.
Airlines should also realise that a receipt or confirmation letter signed by a passenger in an urgent situation to exempt the liability of an air carrier could be deemed as null and void, especially where the third party does not clearly explain to the passenger that they are exempting all carriers by signing such confirmation.
In general, it is important for a contracting carrier to be specific in an agreement on flight transfers. When the contracting carrier has to compensate a passenger due to a third party's acts or omissions, it could be entitled to seek contribution or indemnification from the third party. Also, the carrier could guide the third party to formulate a more comprehensive and rigorous form of release for the passenger to sign in the event of a dispute. It is also very important to provide the passenger with sufficient and clear explanations on the liability exemption clause.
For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at www.skrlf.com.